The
lesson for Obama of Europe's failed austerity
With the US economy still vulnerable to shocks, Obama's
re-election prospects are fragile. He must offer a bold
alternative

By Robert Reich

April 24, 2012 "The
Guardian" -
- So far, President Obama's election strategy can best
be summed up as: "We're on the right track, my economic
policies are working, we still have a long way to go, but
stick with me and you'll be fine."

This
won't be enough to win him the election. The US recovery is
too anaemic, and the chance of an economic stall between now
and election day far too high.

Even
now,
Mitt Romney's empty "I'll do it better" refrain is
attracting as many voters as Obama's "we're on the right
track." Each is gathering 46% of voter support, according to
the latest
New York Times/CBS News poll.

Only
33% of the American public thinks the economy is improving,
while 39% say they're still falling behind financially – an
11-point increase from 2008. Nearly two thirds are concerned
about paying for housing, and 23% of Americans with
mortgages say they're underwater.

If the
economy stalls, Romney's empty promise will look even
better. And I'd put the odds of a stall at 50:50.

Europe's forced austerity is pushing the continent into
recession. Spain is already in one, and much of the rest of
Europe is on the way. Luckily, the United States hasn't yet
fallen into the austerity trap – America's fiscal policy is
still wisely expansionary – but it's not sufficient to
overcome a pull-back by American consumers.

Because most Americans' real pay continues to drop, they're
going deeper into debt and tapping into their savings.
Inevitably, they'll have to cut their spending. Without
sufficient government spending to make up the difference,
total demand will shrink, causing employers to pare hiring.
March's disappointing jobs report could mark the
beginning.

All
this puts the odds of a Romney presidency far too high for
comfort. So, what is Obama to do?

He'll
have to go beyond "we're on the right track" and offer the
nation a clear, bold strategy for boosting the economy. Such
a strategy would help inoculate him if the
US economy slows. It would also provide him with an
economic mandate in his second term.

Obama
should focus on four items.

First,
he should demand that America's big banks modify the
mortgages of homeowners still struggling in the wake of Wall
Street's housing bubble. He should threaten that if the
banks fail to provide meaningful relief to homeowners, in
his second term he'll fight to resurrect the Glass-Steagall
Act that used to separate investment from commercial
banking. He'll also seek to break up Wall Street's biggest
banks – as the
Dallas
branch of the Federal Reserve Bank recently recommended.

Second, he should stop
oil speculators from raising gas prices. Numerous
studies are showing that speculation by US index-fund
traders is pushing up gas prices by almost $1 a gallon. Wall
Street and Big Oil are making lots of money, but average
Americans are paying the price. Oil-industry lawyers have
gone to court to prevent the Commodity Futures Trading
Commission from setting limits on such speculation. Obama
should push the CFTC to set those limits, and instruct the
Justice Department to investigate and prosecute oil-price
manipulation.

Third,
the president should make it clear he won't allow government
spending cuts to take precedence over job creation. He won't
follow Europe into an austerity trap of slower growth and
higher unemployment. While he understands the need to reduce
the nation's long-term budget deficit, he should commit to
vetoing any spending cuts until the unemployment rate in the
US is down to 5%. Instead, he should commit to further
job-creating investments in the nation's crumbling
infrastructure – pot-holed roads, unsafe bridges, inadequate
pipelines, woefully-strained public transportation, and
outmoded ports.

Finally, Obama should make sure Americans understand the
link between America's fragile recovery and widening
inequality. As long as so much of the nation's disposable
income and wealth goes to the top, the vast middle class
lacks the purchasing power to fire up the economy. That's
why the so-called "Buffett rule" he has proposed – setting a
minimum tax rate for millionaires – needs to be seen as just
a first step toward ensuring that the gains from growth are
more widely shared. He should vow to do more in his second
term.

Such
an economic strategy – forcing banks to help distressed
homeowners, stopping oil speculation, boosting spending
until unemployment drops to 5%, and fighting to ensure
economic gains are widely shared – is critical to jobs and
growth. It's the mirror image of Europe's failed austerity
policies.

But to
put any of this into effect, Obama will need a Congress
that's committed to better jobs and wages for all Americans.
He should remind voters that congressional
Republicans prevented him from doing all that was needed
in the first term, and they must not be allowed to do so
again.

ROBERT
B. REICH, Chancellor’s Professor of Public Policy at the
University of California at Berkeley, was Secretary of Labor in
the Clinton administration. Time Magazine named him one of the
ten most effective cabinet secretaries of the last century. He
has written thirteen books, including the best sellers
“Aftershock" and “The Work of Nations." His latest is an e-book,
“Beyond Outrage.” He is also a founding editor of the American
Prospect magazine and chairman of Common Cause.